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Jonathan,
A mortgage or deed of trust secures promises. A promissory note is a promise. An option is a promise.
If borrower fails to pay Bank of America on their mortgage, Bank of America will call the note (the promise) due. If borrower still doesn’t pay (correct the default, which in this case is the promise to pay), then the mortgagee (Bank of America) can foreclose. At foreclosure, all junior encumbrances are wiped out. All senior encumbrances remain. Bank America is allowed to make payments on senior position encumbrances.
I can get a Limited POA from Optionor that allows me to deal with all things concerning the property.
Can the borrower call the lender? Yes.
Bill Cook
770-815-8727Jonathan,
In the Deed of Trust (called a Security Deed in Georgia), if foreclosing, the borrower gives the lender POA at the time the note and security deed are signed. This is how a Deed of Trust works.
Another thing also happens with foreclosing in Georgia (I can’t speak for foreclosure rules in other states): The Lender (Grantee) has the right to pay senior lien holders.
That said, no, the Optionor does not automatically give me a POA that allows me to step into his shoes when doing a S2. Is that a discussion I can have with Optionor prior to the Option being made? Yep. Have I ever done that? Nope.
Want to add another thing: Yesterday, Dyches and I were discussion what would happen if I held an Option, the Optionor refused to sell me his/her property, could I foreclose. To boot, what would be the opening amount for the foreclosure auction bid?
Neither of us has foreclosed on an Option.
This year, I want to spend time with my real estate attorney getting these two questions answered.
Bill Cook
770-815-8727I’m not an attorney, but it would seem to me that The option can cloud title but cannot foreclose, especially since the option is for executing a sale at the time desired. how could an optionor refuse if all the paperwork has already been done? is a signature needed from the optionor? My assumption would have been that all those things would have been done and it’s just merely executing, but maybe I’m missing information
Jonathan,
The purpose of a mortgage (if in a mortgage state) or a deed of trust (in a deed of trust state) is to secure a promise(s). If the promise(s) are not kept by the promisor (grantor), the person/entity who holds the promise (note, options, P&S, etc.) has the right to call the promise due. In the case of a note, the balance of the note is due. In the case of an option, the WD is due. If the promisor DOESN’T pay off the note or give the deed, because the property that’s secured is the collateral for the promise, then the promisee (grantee) can foreclose on the property.
At the foreclosure auction, two things can happen: First, the property sells at a price acceptable to the promisee and the promisee gets the money. Any overage is give to the promisor. Second, the property doesn’t sell at the foreclosure auction, which means the promisee gets the deed to the property.
If the promisee forecloses, all junior liens (except property tax lines and IRS liens) are wiped away. All senior encumbrances survive foreclosure. The promisee has the right to make the payments on any senior lien(s), thus making it a subject-to deal.
Dyches and I have been discussing the best way to put a value on the option in case it goes to foreclosure auction.
I’ve also been discussing secured options with Pete Fortunato. Most of us know that Pete, because it would involve the courts, won’t foreclose on an option he’s holding. He secures his options via a mortgage because this insures he’ll get a phone call if the property owner goes to sell or refinance. Pete seeks the phone.
Neither Pete, nor Dyches, nor I have foreclosed via a mortgage or deed of trust on an option. In my case, I’ve never needed to, but would if that was my only alternative.
About the POA: I do not get a POA from property owner when doing an option, but always get a POA when doing a S2.
Hope this doesn’t confuse too much.
Love y’all,
Bill Cook
770-815-8727
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